Identifying the dynamic protective effects of social programs

The short-term benefits of certain social support programs such as CCTs have been well documented –CCT programs tend to raise household consumption as well as the utilization of schools and health clinics. It is a natural question, and one of great interest, to think more dynamically and ask whether these programs also enable households to invest in productive assets. Such investments may not immediately benefit households but place them on a higher growth trajectory and possibly protect them from future downturns even after cessation of program benefits. At least that’s the hope. The alternative story is not as rosy – beneficiary households grow dependent on the program to maintain living standards and then revert to their earlier poorer status when the program ends.

Despite the industry of CCT evaluations that has grown up in the last decade, almost no work has looked at this specific topic. Slowly, though, the research is coming. At least two recent papers – one published earlier this year, the second is a very recent working paper – address this question. Both find positive evidence.

The first paper, by Paul Gertler, Sebastian Martinez, and Marta Rubio-Codina, returns to the well-trodden ground of the Oportunidades program in Mexico to investigate the household investment behavior of beneficiaries. Leveraging the randomized introduction of the CCT program across villages, the authors find that treated households:

- Significantly increase their ownership of productive agricultural assets such as farm land and farm animals.

-This investment in turn results in significantly higher agricultural income – almost ten percent higher than that observed in control communities 18 months after program introduction.

-Treated households are also more likely to start a microenterprise, especially in the handicrafts sector. Only 5% of control households reported operating a household business, more than 8% of treated household reported doing so after two years of program benefits.

-These gains persist six years after program onset (and four years after the control communities were also introduced to the program) – household consumption was almost six percent higher among the originally treated households.

As I reviewed the results, one potential confounder immediately came to mind – if local markets aren’t fully integrated with surrounding areas then the infusion of cash from Oportunidades (highly significant since the majority of residents are beneficiaries) can raise the local price level. If this is indeed the case then the gains mentioned above will simply reflect higher nominal prices and not real increases in well-being. Fortunately, the authors investigate this to the extent they are able. It turns out there are no observable price differences, at least in food prices and wage levels, across treatment and control communities. In addition, non-beneficiary households in treatment areas do not report higher asset and consumption values as they might if local price levels increased. Especially given the existence of long-run gains to initially treated households even after control communities have been introduced into the program, it appears that the observed productivity gains are real.

The second paper is also related to the evaluation of a CCT program, this one in an agricultural region of Nicaragua, but this time focuses on two complimentary programs implemented alongside the CCT (David included a link to the paper summary in the last Friday links). These parallel programs attempt to promote income diversification away from an exclusive reliance on farming. The first add-on program is a productive investment grant; the second a vocational training program. In the study, by Karen Macours, Patrick Premand, and Renos Vakis, households within treatment villages were randomly assigned to receive either (a) only the CCT, (b) the CCT plus a scholarship for a vocational training course in the nearest major town, or (c) the CCT plus a $200 grant for productive investment that was released only upon completion of a satisfactory household business plan for grant usage.

Take-up of the two supplementary interventions was quite high – 90 percent of households that were offered the vocational scholarship had a member that completed the course while virtually 100% of grant households ultimately received the funds. (To ease interpretation of program performance, the authors mainly report intention-to-treat estimates that are not affected by the partial take-up of the scholarship.)

Two years after the introduction of the program, the researchers returned to collect endline data and also match communities with the climate record that spans the study period. As virtually all households engage in the agricultural economy, traditional incomes are highly depended on rainfall. Is it possible that either the CCT alone or the complimentary interventions serves to protect households from adverse weather shocks? To answer this question, the authors exploit the dual randomization of program and weather exposure.

While the CCT-only households report both higher income and consumption than controls in neighboring communities (about 8% higher consumption and 5% higher earnings), it turns out that these gains are virtually eliminated in areas that experienced a negative rainfall shock (defined as either community reports of drought or actual threshold measures of rain shortfall). In contrast, households with the business grant not only report even higher consumption and earnings but are able to maintain their levels of consumption and income in the face of severe rain shortfalls. The vocational scholarship households also had higher reported levels of income and consumption in drought affected areas but these positive gains are not statistically significant.

How did the productive investment grant protect beneficiary households from weather shocks? Some recipient households translated the funds into non-agricultural micro-enterprises, especially those in commerce (small kiosks) and food preparation (such as bakeries and cheese shops). As a result of the new activities enabled by the grant, recipients report higher profits from non-agricultural enterprises and greater returns on livestock. Taken together, the results suggest a 15 to 20 percent annual return on the initial investment of the $200 grant.

This is an exciting area of inquiry and more research in diverse settings is needed. Traditionally, social protection programs have been designed to alleviate immediate poverty concerns and/or spur long-run investments in human capital (i.e. CCTs). If these programs, either directly or combined with productive investments as in the case of Nicaragua, also help place poorer households on higher growth trajectories in the short and medium term then the rationale for such programs is all the stronger.